Zomato Makes Investors Richer By 210% In A Year; Brokerages Show Higher Appetite For Stock

Zomato share price jumped almost 5 per cent to hit its fresh 52-week high in intraday trade on BSE on Thursday, February 15. With this sharp surge, the stock has hit a fresh 52-week high of Rs 159.20 on the BSE.

Zomato share price has surged over 210 per cent in the last one year against a nearly 17 per cent gain in the equity benchmark Sensex. The stock hit its 52-week low of Rs 49 on March 28 last year. At the current market price of Rs 159.20, the stock has surged 225 per cent from its 52-week low level.

Zomato shares are in focus as CLSA expects the stock to increase investors’ wealth by more than 46 per cent (from the closing price on February 14).

CLSA believes that Zomato is a small company but an increasingly indispensable part of the profit pool. It says that the third quarter results show a path to stable profitability. The analyst has also said it sees a significant upside even if the base case for food delivery does not play out.

The brokerage commentary comes as the company’s profit for the October to December 2023 quarter came in at Rs 138 crore, as against a loss of Rs 347 crore in the same quarter last year.

Zomato’s contribution margin – a key profit metric – expanded to 7.1 per cent from 6.6 per cent in the quarter due to the introduction of a fee for customers to use the food delivery platform. Zomato’s gross order value (GOV) – the total value of all orders placed – at Blinkit, its grocery delivery business, more than doubled, while its mainstay food delivery business grew 27 per cent for the quarter.

The online food delivery platform had turned profitable for the first time during the June quarter of this fiscal. The profitability was aided largely by operational improvement in the company’s food business. Zomato’s consolidated net profit then was Rs 2 crore for the June quarter against a net loss of Rs 186 crore in the year-ago quarter.

Following the Q3 results last week, brokerages including HSBC, Jefferies and Bernstein also raised their target prices on the stock. Most of them expect Zomato’s quick commerce to continue to perform both in terms of growth and profitability.

Going forward, the food delivery growth can be driven by an improvement in order frequency, restaurant additions and increase in market share. While Zomato’s average order value increased, it was led by seasonal demand, according to the management. Key monitorables for Zomato going ahead will be the scale of business beyond metros and potential competitive intensity in future, said Elara Capital.

According to Motilal Oswal, the food delivery business is still in a nascent stage in India, with a long runway for growth. “With a dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong 38 percent Adjusted revenue CAGR over FY24-26,” the brokerage said as it maintained its ‘buy’ rating on the counter with a target price of Rs 170 per share.

Geojit Finacial Services in its report said “a strong growth momentum in the segments, positive margin, and a leading market position” are expected to support the superior performance of Zomato. The brokerage reiterated its ‘buy’ rating on the stock with a rolled forward target price of Rs 174, based on 7x FY26E price/sales.